Mazda Motor Corporation is the number five Japanese automaker, behind Toyota Motor Corporation; Nissan Motor Co., Ltd.; Honda Motor Co., Ltd.; and Suzuki Motor Corporation. Mazda produces sedans, sport wagons, station wagons, mini-vans, sports cars, light trucks, and commercial vehicles, selling them in Japan under such names as the Demio, Axela, Atenza, Roadster, RX-8, MPV, and Tribute. Among the company's U.S. brands are the Protegé, Mazda3, Mazda6, Miata, RX-8, MPV, and Tribute. During fiscal 2003, Mazda sold more than one million vehicles, 294,000 in Japan and 723,000 overseas. The company operates two main production facilities in Japan and 15 overseas and is also involved in two production joint ventures with Ford Motor Company located in Michigan and Thailand. Ford took a substantial equity stake in Mazda in 1979, and after 1996, when it gained a controlling 33.4 percent stake of a Mazda verging on bankruptcy, Ford spearheaded a turnaround at the company based on cutting costs, restructuring, and introducing a string of successful new models.

Early History

Mazda was organized by Jugiro Matsuda in 1920 as the Toyo Cork Kogyo Company, Ltd., or East Sea Cork Manufacturing Company. The small enterprise, located in Hiroshima in southern Japan, was initially involved in the manufacture of cork products. In the mid-1920s, however, it expanded its product line to include several machined products. Reflecting this diversification, Matsuda dropped the word Cork from its name in 1927, and in 1929 the company began production of machine tools. Matsuda believed that the enterprise could remain successful only if it had a truly unique product. To this end, Toyo Kogyo began design work on an unusual three-wheeled truck that proved commercially successful after its introduction in 1931.

The company was also an early supplier of products to a family of closely linked firms operating under the Sumitomo industrial conglomerate, with whom Toyo Kogyo maintained a close relationship. In 1935 the company began turning out rock drills and gauge blocks, which were of particular interest to Sumitomo, then one of Japan's largest mining concerns. The company supplied Sumitomo—and other companies involved in the exploitation of resources in Taiwan, Korea, and later Manchuria—with machine tools.

After the seizure of the Japanese government by right-wing militarists in the mid-1930s, Toyo Kogyo was drawn into military production. The company produced a variety of products for the Japanese Army, including automotive parts and machinery. The company's management was placed under government authority after the United States declared war on Japan in 1941. Although an important and capable supplier, Toyo Kogyo was not considered a target for strategic bombing. Its operations remained intact until the last days of the war, although they were somewhat limited by the increasing lack of access to raw materials.

On August 9, 1945, the entire city of Hiroshima was destroyed by an American atomic bomb. Toyo Kogyo was Hiroshima's largest employer, and while the factory was located far enough from the city center to avoid serious damage, many of Toyo Kogyo's employees were not; 400 workers died. Soldiers who had worked for Toyo Kogyo before the war returned to Hiroshima skeptical as to whether the city and its businesses could be rebuilt. Nevertheless, by December 1945 Toyo Kogyo was back in business, again turning out the three-wheeled trucks
that were the core of its business. With a large commercial operation back in business, and a thriving local economy, Hiroshima was quickly reconstructed. Many workers felt a personal debt to Toyo Kogyo for its role in reviving the war-torn city.

During this time, Jugiro Matsuda retired, designating his son, Tsuneji, as his successor. Tsuneji Matsuda proved to be an extremely capable manager, exemplifying many of the qualities that would come to define the company as a whole: patience, diligence, and dedication to quality and efficiency. Early in his tenure, Tsuneji Matsuda became interested in the manufacture of automobiles, which he saw as essential to modern life in Japan. Indeed, with personal incomes increasing in Japan, automobile production had the potential to generate tremendous profit and lift the company to even greater heights.

In 1954 Toyo Kogyo established a technological agreement with Acme Resin that enabled the company to begin using a new shell molding method. After several years of development, Toyo Kogyo established plans for its first mass-produced automobile, the two-door "Mazda" R360 coupe, introduced in 1960. Matsuda reportedly chose the car's name for its association with Ahura Mazda, the ancient Zoroastrian god of light, as well as for its similarity to the name Matsuda. The R360 made Toyo Kogyo a competitor in the growing consumer automobile market. Nevertheless, while the company had introduced a viable product, the Mazda lacked one thing: it was not unique.

Production of the Wankel Engine in the 1960s

Matsuda had long known of a virtually abandoned engine technology developed in Germany by the inventor Felix Wankel. Wankel's pistonless engine worked on a revolutionary principle in which a single triangular rotor circulated around a large combustion chamber with a gear at its axis. The rotor, moving orbitally around the gear, compressed air and fuel on one side, where a spark plug ignited the mixture. This drove the rotor around the axial gear, expelling exhaust fumes while setting up the next face of the rotor for another combustion. As the rotor wound its way around the combustion chamber, the gear at its axis was forced to spin. This gear was attached to a clutch and transmission, and from there to a drive shaft. The Wankel engine offered more than mere novelty; by eliminating the in-out, in-out motion of pistons, the Wankel would operate more smoothly and with better performance than a conventional engine.

While successful in a laboratory, the Wankel engine was overlooked by engine makers because no one believed that it could be accurately machined in mass production. Matsuda, however, had great faith in his company's machining techniques, and his engineers assured him that such an engine could be built on a massive scale. Matsuda reached an agreement with NSU/Wankel, the German firm that held a patent for the Wankel Engine, and in 1961 he won an exclusive agreement to develop the engine. Design work commenced, but it took several years to develop a suitable model.

In the meantime, Toyo Kogyo introduced a four-door automobile, the Carol 600, in 1962, and the following year the company's one millionth vehicle rolled off its assembly line. In 1965 Toyo Kogyo produced another new model, the Mazda 800/1000, and completed work on a proving ground at Miyoshi. Also that year, the company established a diesel engine technology agreement with Perkins Services. Branching into the market for light-duty trucks, Toyo Kogyo introduced the Mazda Proceed B-series compact pickup truck.

In 1966 the company completed construction of a new passenger car plant at Hiroshima. The following year, this plant began manufacturing the Mazda Cosmo Sports 110S automobile, the first Toyo Kogyo vehicle to be powered by a Wankel rotary engine. This model placed Toyo Kogyo in a truly unique position in the market. The rotary-powered engine gave the company an exclusive product that was smooth riding, quiet, and fast. Nothing produced by Toyo Kogyo's competitors, industry giants Nissan and Toyota, could match it.

Expanding the Product Line and Refining the Wankel Engine

Other introductions to the company's automobile line during this time included the Mazda 1000/1200; the rotary-powered R100 Mazda Familia Coupe; the RX-2 Capella; the RX-3 Savanna; and the RX-4 Luce. In 1972, Toyo Kogyo completed manufacture of its five millionth vehicle, nearly one million of which had been exported; exports to Europe had begun in 1967 and to the United States three years later. As worldwide sales increased, Toyo Kogyo set up sales organizations in the United States, Canada, Belgium, West Germany, Australia, and Malaysia.

In 1972 Henry Ford flew to Hiroshima to negotiate a license that would allow the Ford Motor Company to begin building rotary engines. Sure that Toyo Kogyo was onto something unique and profitable, however, Matsuda flatly refused to share the Wankel technology. Subsequently, Matsuda launched a bold worldwide marketing campaign in which the rotary engine was touted as the answer to high fuel prices. Consumers showed strong interest in the Mazda product line. To finance an expansion of production capacity, Toyo Kogyo made a huge public equity offering.

The OPEC oil embargo sent a shockwave through the world economy in 1973. With petroleum prices skyrocketing, consumer demand for energy efficient automobiles increased dramatically. The Mazda's highly efficient rotary engine seemed the perfect alternative to conventional piston-engined automobiles.

Company Perspectives:

Mazda's raison-d'être is to make cars that are fun to drive—cars that enthuse but are also affordable. The brand message "Zoom-Zoom" aims to capture this feeling, expressing the passionate spirit of motoring enjoyment that drives Mazda forward.

Emissions from the rotary engine, however, exceeded clean air standards in California, the company's largest export market. Adjustments made to clean up the engine came at the expense of fuel economy, which fell to ten miles per gallon. Furthermore, the rotary model was prone to breakdown. Production continued while Toyo Kogyo technicians launched an emergency reengineering of the Wankel design.

By 1974, amid increasing pressure from the OPEC embargo, Toyo Kogyo managed to stretch the Mazda's mileage rating to 16 miles per gallon, and then 20. But by this time, Honda, Ford, General Motors, and Curtiss-Wright had begun development of stratified charge engines that promised greater efficiency than conventional and rotary engines. Moreover, Nissan and Toyota began an all-out war for market leadership in Japan, squeezing out smaller competitors such as Toyo Kogyo and Suzuki Motor Co., Ltd.

As consumer interest in the rotary waned, Toyo Kogyo began searching for ways to keep its factories operating nearer capacity. Matsuda negotiated a deal with Ford in which Toyo Kogyo would manufacture Ford's Festiva model at its facilities. Strapped for cash, Toyo Kogyo finally agreed to license its rotary technology to Suzuki, which used the engine for a new motorcycle. Sumitomo Bank also assisted Toyo Kogyo in getting out of financial danger.

When the oil embargo was lifted, oil prices and consumer interest in fuel-efficient engines declined rapidly. Improvements in the rotary design were finally perfected, giving Toyo Kogyo the efficient, environmentally friendly engine it needed—about two years too late. While U.S. fuel economy regulations kept Toyo Kogyo in the American market, the company had lost two years in fixing the rotary engine, during which time Honda, Ford, and GM had developed their own improved engines, leaving Toyo Kogyo in the middle of a crowded pack.

With nothing other than the rotary engine to distinguish its product line, Toyo Kogyo was forced to quickly develop new models and concentrate on product quality as a competitive factor. The Mazda Familia and Capella/626 were introduced in 1977, followed by the Savanna RX-7 in 1978. By this time Toyo Kogyo had turned out more than ten million vehicles, one million of which were rotary-powered.

Amidst the company's efforts to recover from the debacles of the 1970s, Tsuneji Matsuda retired, leaving his son Kohei Matsuda in charge. The younger Matsuda initially made great progress in shoring up the company's balance sheet. But in the opinion of the Sumitomo interests, which owned most of Toyo Kogyo's shares and bankrolled its earlier failures, the turnaround was not good enough. Sumitomo Bank officers felt that Kohei Matsuda was not adequately preparing the company for the future, and they disagreed strongly with his plans for restructuring the company, which included a wider product line and greater autonomy from Sumitomo management. Eventually, Matsuda was forced to resign his presidency to Yoshiki Yamasaki, a director favored by Sumitomo. The abdication formally ended the Matsuda dynasty at Toyo Kogyo.

The company enjoyed a jump in sales in 1979, when the Iranian Revolution caused a brief oil crisis. Also helping boost sales was the fact that Toyo Kogyo and other Japanese manufacturers had become known in the United States for the high quality of their products; American cars, by contrast, had become known as poorly designed, carelessly built, and overpriced.

Growing Affiliation with Ford in the 1980s

In 1979 Ford Motor Company began negotiations to acquire a large stake in Toyo Kogyo, hoping to merge it with its own Japanese subsidiary, Ford Industries. The $135 million deal, completed in November, left Ford with a 24.5 percent share of Toyo Kogyo. The merger paved the way for several new joint ventures between Ford and Toyo Kogyo, in which the Japanese company built small cars and trucks under the Ford nameplate and distributed Ford products in Japan.

Mazda posts a net loss for the year, the first of five straight years in the red.

1996:

Ford sinks an additional $481 million into Mazda, increasing its interest to a controlling 33.4 percent; former Ford executive Henry D.G. Wallace is named president of Mazda, becoming the first non-Japanese to head a Japanese corporation.

1999:

Mazda posts its first full-year net profits in six years.

2002:

The midsize Atenza/Mazda6 debuts.

2003:

RX-8 sports car and the subcompact Axela/Mazda3 are introduced.

In 1980, shedding the last of its failures with the rotary engine, Toyo Kogyo settled a class-action suit charging design flaws with early models. Also that year, the Mazda FWD Familia was named
car of the year in Japan. Unable to match Nissan and Toyota's large sales staffs, Toyo Kogyo established a string of showrooms across Japan under the name Autorama. In 1981, as it exported its five millionth vehicle, the company set up sales organizations in the United States and Europe. In 1982 Toyo Kogyo established another production plant at Hofu, and in 1983 turned out its 15 millionth vehicle. The following year, Toyo Kogyo formally changed its name to Mazda Motor Corporation, reflecting the tremendous popularity of its main product line.

Mazda introduced several new automobiles in 1985, 1986, and 1987, including the new versions of the Mazda RX-7 and 626. By 1987 the company had produced 20 million vehicles. Mazda also entered into several joint ventures, including one with Ford and Matsushita for the production of air conditioning systems. Under a second partnership, Mazda manufactured microcars for Suzuki, and under a third, it imported Citroën cars to Japan.

Mazda Motor continued to be led by a committee of Sumitomo bankers, who received input from Ford and the South Korean automaker Kia Motors Corporation; Mazda had acquired an 8 percent interest in Kia in 1983. In 1987, however, Norimasa Furuta, a former official of the Ministry of International Trade and Industry, assumed the presidency of the company.

Under Furuta, Mazda sharpened its focus, developing several new vehicles for specific markets. The Persona and Proceed were developed specifically for the Japanese market, joining the company's mainstay, the 323 Sedan. The MPV minivan, initially intended for sale only in the United States, was later introduced in Japan. Of the company's new vehicles, the MX-5 Miata, introduced in 1989, was undoubtedly the most successful. A small sports car reminiscent of the MGB and Triumph Spitfire, the Miata was marketed in the United States, where it found an appreciative market particularly among young, affluent males. In designing the Miata, Mazda engineers borrowed liberally from the British Lotus and Elan, which they admitted disassembling for reference. Miata sales were brisk and did much to revive the reputation of Mazda in the United States.

While Nissan, Toyota, and Honda created luxury car divisions to compete with American Buicks, Lincolns, and Cadillacs, Mazda continued to specialize in smaller cars and trucks. With Ford as its largest shareholder, Mazda found its marketing niche operating informally as a small car subsidiary of Ford. In 1987 Mazda established a U.S. production facility in the Detroit suburb of Flat Rock, Michigan, employing American union labor. The company also established a massive sales and research organization in the United States, employing thousands of Americans.

Nevertheless, 80 percent of the vehicles Mazda sold in foreign markets were produced in Japan, saddling the company with extra transportation costs and subjecting it to foreign import restrictions, particularly in Europe. In addition, Mazda maintained five separate dealerships in Japan for Mazda, Ford, and Citroën.

Yoshihiro Wada succeeded Furuta as president of Mazda in 1990. Furuta was given a ceremonial position on the board, joining Chairman Kenichi Yamamoto, who had headed Toyo Kogyo's rotary development during the 1960s. As it entered the 1990s, Mazda occupied a unique niche in the market, producing a relatively narrow line of midsize cars and small trucks.

The Miata's successful introduction in 1989 led Mazda to introduce five new vehicles in the United States, including the 626, in the hopes of becoming a full-line car maker. With at least three-quarters of its parts manufactured in the United States, the 626 was the first Japanese vehicle to be classified as a U.S. car under federal law. Despite these advances, Mazda's U.S. market share remained low, at between 2.2 percent and 2.6 percent from 1988 to 1993. In 1992 Mazda sold a 50 percent interest in its Flat Rock, Michigan, facility to Ford, creating a joint venture called AutoAlliance International, Inc. The next year, the company laid off 25 percent of its U.S. headquarters workforce, bringing Mazda's American headquarters staff to 400.

The company was not faring any better domestically. Between 1990 and 1996 Mazda's market share had dropped from 7.6 percent to 4.1 percent. Actual vehicles made and sold had declined also, from a peak of 1.4 million manufactured and 600,000 sold in Japan to 800,000 manufactured and 400,000 sold in 1996. Such a decline meant massive overcapacity in Mazda factories. Still, Mazda refused to combat the shrinkage by laying off employees; instead it used several piecemeal approaches that were only somewhat effective in cutting costs. First, it stopped replacing retirees to reduce head count, then it decreased bonuses and stopped production at its Hofu and Hiroshima factories for a few days each month. According to the Economist in 1996, Mazda had lost its unique edge, which it had hoped to recover with the Miata: "Most of Mazda's output is dull, fairly mainstream and fairly expensive. There is a market for boring, reliable cars, but customers tend to prefer those produced by bigger names, such as Toyota. Mazda's one hope of outsmarting bigger car makers is to be nimbler than they are, guessing trends ahead of time."

Sumitomo Bank had its own idea of how to bolster the company, which at times teetered on the brink of bankruptcy and which was in the midst of five straight years in the red, a streak that began with the fiscal year ending in March 1994. In 1996 it again exerted its power over Mazda by setting up a cash infusion and, in effect, a takeover by Ford. By putting up $481 million in cash, Ford brought its investment to 33.4 percent of the company, the legal line in Japan for a controlling interest. Soon thereafter, Henry D.G. Wallace, a former Ford executive, became president of Mazda Motor Corp., the first non-Japanese to head a Japanese corporation.

For approximately 20 percent below the market price for Mazda shares, Ford vastly increased its access to Japanese and other southeast Asian markets. It also hoped to integrate Mazda into its global reorganization, Ford 2000, intending to use Mazda's small-car and engineering expertise to benefit other Ford operations and, at the same time, to create economies of scale for Mazda. Ford's small-car operations in Europe, however, threatened to make Mazda production redundant.

Mazda made some headway in the fiscal year ending in March 1998. Sales of its new Demio model, a subcompact
wagon, proved strong in Japan, and the consolidated net loss of ¥6.8 billion ($51.1 million) for the year was less than half of the ¥17.55 billion ($141.8 million) loss reported for the previous year. At the end of 1997, Wallace retired from the presidency and was replaced by another former Ford executive, James Miller. That same year, as its U.S. market share continued to fall, Mazda restructured in North America. Four U.S. subsidiaries were consolidated into the Irvine, California-based Mazda North American Operations, resulting in the trimming of 400 jobs from its North American workforce of 1,630. Mazda also found success that year introducing new models, including a new version of the Capella/626 sedan and station wagon, a new Familia/323 three-door hatchback, an all-new third-generation version of the Protegé sedan (Protegé was a more recently used U.S. name for the 323), and, also in the United States, the first redesigned version of the MX-5 Miata. These initiatives, coupled with a weaker yen, which made the firm's imports more competitive, helped return Mazda to profitability in the fiscal year ending in March 1999, when net income totaled ¥38.7 billion ($321.1 million). This turn of events was achieved despite the economic turmoil in southeast Asia in 1997 and 1998 that had threatened Mazda's nascent turnaround. The company had been expanding its operations in southeast Asia in the mid-1990s, hoping to reduce the negative effect of the rising yen on its car prices. In 1993 Mazda had opened another production company in the Philippines, and two years later it began a joint venture with Ford called AutoAlliance (Thailand) Company Limited. This venture began production of pickup trucks for sale in Thailand in May 1998 and then began exporting both Mazda- and Ford-badged trucks that December; it also enabled Mazda to close its existing plant in Thailand.

As part of its turnaround strategy, Mazda aimed to shrink its asset base, cut down on its heavy debt, and improve profitability. Toward these ends, Mazda in 1999 sold its stake in Ford Sales Japan, the former Autorama chain of showrooms, to Ford of Japan, and its stake in Mazda Credit, Mazda's finance arm, to Ford Credit. Mazda also worked to rein in its sprawling dealership network in Japan, shutting down more than 100 sales outlets, leaving 60 consolidated sales subsidiaries, in addition to 695 independent dealers. Mazda also sold to Nissan its 34 percent stake in JATCO Corporation, a joint venture with Nissan that produced automatic transmissions. The company also announced its intention to sell its stake in Kia. In December 1999 Miller retired from Mazda and Ford for health reasons, and he was replaced as Mazda president by Mark Fields. The 38-year-old Fields had been sent to Mazda by Ford in August 1998 as a senior adviser and had led the streamlining of Mazda's Japanese dealerships. He became the youngest executive to head a Japanese automaker.

Further Restructuring, New Models, and a Stronger Recovery in the Early 2000s

During 2000 Mazda introduced into the U.S. and Japanese markets the Tribute, a compact sport-utility vehicle (SUV) that had been jointly developed with Ford. Sales of the Tribute in the United States were strong, but they were disappointing in Japan. In November of that year, as Mazda began losing money again, primarily because of the impact of a stronger yen, Fields announced plans to step up the pace of restructuring. He launched an early-retirement plan that led to the elimination of 2,200 jobs, and he also closed an assembly line in Japan that was capable of producing 266,000 cars per year, representing a cut in Japanese production of 25 percent. A portion of the production was shifted to a Ford plant in Valencia, Spain, where 100,000 Mazda vehicles would begin to be produced annually. For the fiscal year ending in March 2000, Mazda posted a net loss of ¥155.24 billion ($1.29 billion), because of a combination of falling sales in Japan and Europe, ¥40 billion in restructuring charges, and a ¥155 billion charge to offset an expected shortage in retirement-benefit funds. The company returned to modest profitability the following year based on further cost-cutting and a more favorable currency-exchange environment.

As its efforts to cut costs were enacted, Mazda concentrated as well on getting additional new cars to market as part of Fields' plan to overhaul and jazz up an aging model lineup. Ironically, Fields would not be onboard to see his efforts come to fruition because in June 2002 he was appointed head of Ford's luxury division. Lewis Booth was the successor, becoming the fourth Ford-dispatched executive to lead Mazda since the U.S. automaker acquired its controlling stake in 1996. Booth had most recently headed Ford's Asia-Pacific and African operations.

Late in 2002 the new models began their rollout. The Atenza, a sporty midsize sedan sold in Europe and North America as the Mazda6, was introduced as a replacement for the Capella/626. In addition to the sedan version, the Atenza/Mazda6 was eventually also available in a sport wagon and a five-door hatchback. Also debuting was a new version of the subcompact Demio; in Europe this car was sold as the Mazda2, and production of the Mazda2 took place at the Ford plant in Valencia, Spain, starting in January 2003. These introductions were supported by a marketing campaign that featured the slogan "Zoom-Zoom." Even though the new models did not affect the full-year results, they nevertheless aided Mazda's strong performance for the fiscal year ending in March 2003. The number of cars sold jumped 7.2 percent, to 1.02 million, and revenues advanced 12.9 percent, to ¥2.36 trillion ($19.7 billion); net income more than tripled, hitting ¥24.13 billion ($201.1 million). Also during 2002 Mazda announced that it would stop manufacturing trucks in Japan and would shut down its Fuchu truck plant in Hiroshima Prefecture in order to concentrate more of its energies and resources on its core passenger automobiles. The company planned to continue to sell Mazda-badged trucks that would be produced by other companies and by the Ford-Mazda joint venture in Thailand.

Mazda next introduced during the later months of 2003 the RX-8 sports car and the Axela subcompact, sold in Europe and North America as the Mazda3. The RX-8 was a successor to the popular RX-7, which had been discontinued in 1996. It featured a new compact rotary engine, could seat four adults, and had a unique four-door design in which the rear doors opened toward the rear and the frame had no side pillars separating the doors. Though it was not expected to sell as briskly as the lower-priced cars that Mazda was also debuting, company executives hoped the RX-8's snazzy design would woo consumers back into Mazda showrooms and could serve as the centerpiece of its strategy of attracting young families through cars featuring better road performance—road performance having been identified as the quintessential component of the Mazda brand. By
March 2004 Nikkei Weekly was reporting that the Atenza/Mazda6, the Demio/Mazda2, the RX-8, and the Axela/Mazda3 had won a total of 129 awards worldwide. Strong sales of the cars was expected to result in record pretax profits for the fiscal year ending in March 2004 of ¥57 billion ($523 million), double the previous year's figure.

In August 2003 Ford selected Booth to take over European operations. The string of Americans in charge of Mazda ended with the appointment of the company's number two man, Hisakazu Imaki, to the presidency. In December 2003, in a certain sign of Mazda's comeback, Ford selected the Japanese automaker to take a leading role in the development of a new subcompact slated to reach the market in 2007. Ford also planned to develop up to ten models for its three North American brands—Ford, Lincoln, and Mercury—based on the Atenza/Mazda6. Also on the agenda for Mazda was to build a much larger presence in the burgeoning market in China. By March 2004 Mazda was involved in three joint ventures with China FAW Group Corp., the nation's leading automaker, for the production of several Mazda models. The company hoped to increase sales in China from 80,000 vehicles to 200,000 by 2007.

Mazda Motor Corporation is one of Japan’s largest manufacturers of automobiles. As a leader in the small car market, Mazda chose not to follow the example of its chief competitors Honda, Toyota, and Nissan in marketing larger luxury automobiles; rather, the company has achieved its greatest sales from smaller sports cars, particularly a model known in the United States as the Miata. Despite the commercial success of the Miata, however, the company experienced disappointing sales elsewhere in its product line in the early 1990s, a fact that some critics attributed to dull, uninspired product designs. Moreover, an uncertain Asian economy in the late 1990s presented challenges for the Japanese automaker.

Early History

Mazda was organized by Jugiro Matsuda in 1920 as the Toyo Cork Kogyo, or East Sea Cork Manufacturing Company. The small enterprise, located in Hiroshima in southern Japan, was initially involved in the manufacture of cork products. In the mid-1920s, however, it expanded its product line to include several machined products. Reflecting this diversification, Matsuda dropped the word Cork from its name in 1927, and in 1929 the company began production of machine tools. Matsuda believed that the enterprise could only remain successful if it had a truly unique product. To this end, Toyo Kogyo began design work on an unusual three-wheeled truck that proved commercially successful after its introduction in 1931.

The company was also an early supplier of products to a family of closely-linked firms operating under the Sumitomo industrial conglomerate, with whom Toyo Kogyo maintained a close relationship. In 1935 the company began turning out rock drills and gauge blocks, which were of particular interest to Sumitomo, then one of Japan’s largest mining concerns. The company supplied Sumitomo—and other companies involved in the exploitation of resources in Taiwan, Korea, and later Manchuria—with machine tools.

After the seizure of Japanese government by right-wing militarists in the mid-1930s, Toyo Kogyo was drawn into military production. The company produced a variety of products for the Japanese Army, including automotive parts and machinery. The company’s management was placed under government authority after the United States declared war on Japan in 1941. Although an important and capable supplier, Toyo Kogyo was not considered a target for strategic bombing. Its operations remained intact until the last days of the war, although they were somewhat limited by the increasing lack of access to raw materials.

On August 9, 1945 the entire city of Hiroshima was destroyed by an American atomic bomb. Toyo Kogyo was Hiroshima’s largest employer, and while the factory was located far enough from the city center to avoid serious damage, many of Toyo Kogyo’s employees were not. Soldiers who had worked for Toyo Kogyo before the war returned to Hiroshima skeptical as to whether the city and its businesses could be rebuilt. Nevertheless, by December 1945 Toyo Kogyo was back in business, again turning out the three-wheeled trucks that were the core of its business. With a large commercial operation back in business, and a thriving local economy, Hiroshima was quickly rebuilt. Many workers felt a personal debt to Toyo Kogyo for its role in reviving the war-torn city.

During this time, Jugiro Matsuda retired, designating his son, Tsuneji, as his successor. Tsuneji Matsuda proved to be an extremely capable manager, exemplifying many of the qualities that would come to define the company as a whole: patience, diligence, and dedication to quality and efficiency. Early in his tenure, Tsuneji Matsuda became interested in the manufacture of automobiles, which he saw as essential to modern life in Japan. Indeed, with personal incomes increasing in Japan, automobile production had the potential to generate tremendous profit and lift the company to even greater heights.

In 1954, Toyo Kogyo established a technological agreement with Acme Resin that enabled the company to begin using a new shell molding method. After several years of development, Toyo Kogyo established plans for its first mass-produced automobile, the two-door “Mazda” R360 coupe. Matsuda reportedly chose the car’s name for its association with Auda Mazda, the ancient Japanese god of light, as well as for its similarity to the name Matsuda. The R360 made Toyo Kogyo a competitor in the growing consumer automobile market. However, while the company had introduced a viable product, the Mazda lacked one thing: it was not unique.

Production of the Wankel Engine in the 1960s

Matsuda had long known of a virtually abandoned engine technology developed in Germany by the inventor Felix Wankel. Wankel’s pistonless engine worked on a revolutionary principle in which a single triangular rotor circulated around a large combustion chamber with a gear at its axis. The rotor, moving orbitally around the gear, compressed air and fuel on one side, where a spark plug ignited the mixture. This drove the rotor around the axial gear, expelling exhaust fumes while setting up the next face of the rotor for another combustion. As the rotor wound its way around the combustion chamber, the gear at its axis was forced to spin. This gear was attached to a clutch and transmission, and from there to a drive shaft. The Wankel engine offered more than mere novelty; by eliminating the in-out-in-out motion of pistons, the Wankel would operate more smoothly and with better performance than a conventional engine.

While successful in a laboratory, the Wankel engine was overlooked by engine makers because no one believed that it could be accurately machined in mass production. Matsuda, however, had great faith in his company’s machining techniques, and his engineers assured him that such an engine could be built on a massive scale. Matsuda reached an agreement with NSU/Wankel, the German firm that held a patent for the Wankel Engine, and in 1961 he won an exclusive agreement to develop the engine. Design work commenced, but it took several years to develop a suitable model.

In the meantime, Toyo Kogyo introduced a four-door automobile, the Carol 600, in 1962, and the following year the company’s one millionth vehicle rolled off its assembly line. In 1965, Toyo Kogyo produced another new model, the Mazda 800/1000, and completed work on a proving ground at Miyoshi. Also that year, the company established a diesel engine technology agreement with Perkins Services. Branching into the market for light duty trucks, Toyo Kogyo introduced the Mazda Proceed B-series compact pickup truck.

In 1966 the company completed construction of a new passenger car plant at Hiroshima. The following year, this plant began manufacturing the Mazda Cosmo Sports 11 OS automobile, the first Toyo Kogyo vehicle to be powered by a Wankel rotary engine. This model placed Toyo Kogyo in a truly unique position in the market. The rotary-powered engine gave the company an exclusive product that was smooth riding, quiet, and fast. Nothing produced by Toyo Kogyo’s competitors, industry giants Nissan and Toyota, could match it.

Expanding the Product Line and Refining the Wankel Engine

Other introductions to the company’s automobile line during this time included the Mazda 1000/1200; the rotary-powered R100 Mazda Familia Coupe; the RX-2 Capella; the RX-3 Savanna; and the RX-4 Luce. In 1972, Toyo Kogyo completed manufacture of its five millionth vehicle, nearly one million of which had been exported. As worldwide sales increased, Toyo Kogyo set up sales organizations in the United States, Canada, Belgium, West Germany, Australia, and Malaysia.

In 1972 Henry Ford flew to Hiroshima to negotiate a license that would allow the Ford Motor Company to begin building rotary engines. Sure that Toyo Kogyo was onto something unique and profitable, however, Matsuda flatly refused to share the Wankel technology. Subsequently, Matsuda launched a bold worldwide marketing campaign in which the rotary engine was touted as the answer to high fuel prices. Consumers showed strong interest in the Mazda product line. To finance an expansion of production capacity, Toyo Kogyo made a huge public equity offering.

The OPEC oil embargo sent a Shockwave through the world economy in 1973. With petroleum prices skyrocketing, consumer demand for energy efficient automobiles increased dramatically. The Mazda’s highly efficient rotary engine seemed the perfect alternative to conventional piston-engined automobiles.

Company Perspectives:

While the quality and value of our vehicles speak for themselves, a closer look at Mazda as a corporation reveals our global commitment to serving as responsible corporate citizens. In 1992, we adopted the “Mazda Global Environmental Charter.” Since that time we ’ve pioneered research into vehicles using alternative fuel sources like compressed natural gas, hydrogen and electricity, while eliminating the production ofCFCs and the use of asbestos in our cars. We’ve also created new methods for labeling and recycling plastic composites used in auto manufacture. To know Mazda is to know our continuing tradition of creating distinctive vehicles for discerning drivers. A tradition that promises to fuel your passion for the road well into the future.

However, emissions from the rotary engine exceeded clean air standards in California, the company’s largest export market. Adjustments made to clean up the engine came at the expense of fuel economy, which fell to ten miles per gallon. Furthermore, the rotary model was prone to breakdown. Production
continued while Toyo Kogyo technicians launched an emergency re-engineering of the Wankel design.

By 1974, amid increasing pressure from the OPEC embargo, Toyo Kogyo managed to stretch the Mazda’s mileage rating to 16 miles per gallon, and then 20. But by this time, Honda, Ford, General Motors and Curtiss-Wright had begun development of stratified charge engines that promised greater efficiency than conventional and rotary engines. Moreover, Nissan and Toyota began an all-out war for market leadership in Japan, squeezing out smaller competitors such as Toyo Kogyo and Suzuki.

As consumer interest in the rotary waned, Toyo Kogyo began searching for ways to keep its factories operating nearer capacity. Matsuda negotiated a deal with Ford in which Toyo Kogyo would manufacture Ford’s Festiva model at its facilities. Strapped for cash, Toyo Kogyo finally agreed to license its rotary technology, to Suzuki, which used the engine for a new motorcycle.

When the oil embargo was lifted, oil prices and consumer interest in fuel-efficient engines declined rapidly. Improvements in the rotary design were finally perfected, giving Toyo Kogyo the efficient, environmentally friendly engine it needed—about two years too late. While U.S. fuel economy regulations kept Toyo Kogyo in the American market, the company had lost two years in fixing the rotary engine, during which time Honda, Ford, and GM had developed their own improved engines, leaving Toyo Kogyo in the middle of a crowded pack.

With nothing other than the rotary engine to distinguish its product line, Toyo Kogyo was forced to quickly develop new models and concentrate on product quality as a competitive factor. The Mazda Familia and Capella 626 were introduced in 1977, followed by the Savanna RX-7 in 1978. By this time Toyo Kogyo had turned out more than ten million vehicles, one million of which were rotary-powered.

Amidst the company’s efforts to recover from the debacles of the 1970s, Tsuneji Matsuda retired, leaving his son Kohei Matsuda in charge. The younger Matsuda initially made great progress in shoring up the company’s balance sheet. However, in the opinion of the Sumitomo interests, which owned most of Toyo Kogyo’s shares and bankrolled its earlier failures, the turnaround wasn’t good enough. Sumitomo Bank officers felt that Kohei Matsuda was not adequately preparing the company for the future, and they disagreed strongly with his plans for restructuring the company, which included a wider product line and greater autonomy from Sumitomo management. Eventually, Matsuda was forced to resign his presidency to Yoshiki Yamasaki, a director favored by Sumitomo. The abdication formally ended the Matsuda dynasty at Toyo Kogyo.

The company enjoyed a jump in sales in 1979, when the Iranian Revolution caused a brief oil crisis. Also helping boost sales was the fact that Toyo Kogyo and other Japanese manufacturers had become known in the United States for the high quality of their products; American cars, by contrast, had become known as poorly designed, carelessly built, and overpriced.

Growing Affiliation with Ford in the 1980s

In 1979 Ford Motor Company began negotiations to acquire a large stake in Toyo Kogyo, hoping to merge it with its own Japanese subsidiary, Ford Industries. The $135 million deal, completed in November, left Ford with a 24.5 percent share of Toyo Kogyo. The merger paved the way for several new joint ventures between Ford and Toyo Kogyo, in which the Japanese company built small cars and trucks under the Ford nameplate and distributed Ford products in Japan.

In 1980, shedding the last of its failures with the rotary engine, Toyo Kogyo settled a class action suit charging design flaws with early models. Also that year, the Mazda FWD Familia was named car of the year in Japan. Unable to match Nissan and Toyota’s large sales staffs, Toyo Kogyo established a string of showrooms across Japan under the name Autorama. Also that year, as it exported its five millionth vehicle, the company set up sales organizations in the United States and Europe. In 1982, Toyo Kogyo established another production plant at Hofu, and in 1983 turned out its 15 millionth vehicle. The following year, Toyo Kogyo formally changed its name to Mazda Motors, reflecting the tremendous popularity of its main product line.

Mazda introduced several new automobiles in 1985,1986, and 1987, including the new versions of the Mazda RX-7 and 626. By 1987 the company had produced 20 million vehicles. Mazda also entered into several joint ventures, including one with Ford and Matsushita for the production of air conditioning systems. Under a second partnership, Mazda manufactured microcars for Suzuki, and under a third, it imported Citroen cars to Japan.

Mazda Motors continued to be led by a committee of Sumitomo bankers, who received input from Ford and Kia Motors, which acquired an eight percent interest in the company in 1983. In 1987, however, Norimasa Furuta, a former official of the Ministry of International Trade and Industry, assumed the presidency of the company.

Under Furuta, Mazda sharpened its focus, developing several new vehicles for specific markets. The Persona and Proceed were developed specifically for the Japanese market, joining the company’s mainstay, the 323 Sedan. The MPV minivan, initially intended for sale only in the United States, was later introduced in Japan. Of the company’s new vehicles, the MX-5 Miata was undoubtedly the most successful. A small sports car reminiscent of the MGB and Triumph Spitfire, the Miata was marketed in the United States, where it found an appreciative market particularly among young, affluent males. In designing the Miata, Mazda engineers borrowed liberally from the British Lotus and Elan, which they admitted disassembling for reference. Miata sales were brisk and did much to revive the reputation of Mazda in the United States.

While Nissan, Toyota, and Honda created luxury car divisions to compete with American Buicks, Lincolns, and Cadillacs, Mazda continued to specialize in smaller cars and trucks. With Ford as its largest shareholder, Mazda found its marketing niche operating informally as a small car subsidiary of Ford. Mazda established an American production facility in the Detroit suburb of Flat Rock, Michigan, employing American union labor. The company also established a massive sales and research organization in the United States, employing thousands of Americans.

Nevertheless, 80 percent of the vehicles Mazda sold in foreign markets were produced in Japan, saddling the company with extra transportation costs and subjecting it to foreign import restrictions, particularly in Europe. In addition, Mazda maintained five separate dealerships in Japan for Mazda, Ford, and Citroén.

Yoshihiro Wada succeeded Furuta as president of Mazda in 1990. Furuta was given a ceremonial position on the board, joining chairman Kenichi Yamamoto, who had headed Toyo Kogyo’s rotary development during the 1960s. As it entered the 1990s, Mazda occupied a unique niche in the market, producing a relatively narrow line of midsize cars and small trucks.

Falling Production in the 1990s

The Miata’s successful introduction in 1989 led Mazda to introduce five new vehicles in the United States, including the 626, in the hopes of becoming a full-line car maker. With at least three-quarters of its parts manufactured in the United States, the 626 was the first Japanese vehicle to be classified as a U.S. car under federal law. Despite these advances, Mazda’s U.S. market share remained low, at between 2.2 percent and 2.6 percent from 1988 to 1993. In 1992 Mazda sold a 50 percent interest in its Flat Rock, Michigan, facility to Ford. The next year, the company laid off 25 percent of its U.S. headquarters work force, bringing Mazda’s America headquarters staff to 400.

The company was not faring any better domestically. Between 1990 and 1996 Mazda’s market share had dropped from 7.6 percent to 4.1 percent. Actual vehicles made and sold had declined also, from a peak of 1.4 million manufactured and 600,000 sold in Japan to 800,000 manufactured and 400,000 sold in 1996. Such a decline meant massive overcapacity in Mazda factories. Still, Mazda refused to combat the shrinkage by laying off employees; instead it used several piecemeal approaches that were only somewhat effective in cutting costs. First, it stopped replacing retirees to reduce head count, then it decreased bonuses and stopped production at its Hofu and Hiroshima factories for a few days each month. According to The Economist in 1996, Mazda had lost its unique edge, which it had hoped to recover with the Miata: “Most of Mazda’s output is dull, fairly mainstream and fairly expensive. There is a market for boring, reliable cars, but customers tend to prefer those produced by bigger names, such as Toyota. Mazda’s one hope of outsmarting bigger car makers is to be nimbler than they are, guessing trends ahead of time.”

Sumitomo Bank had its own idea of how to bolster the company. In 1996, it again exerted its power over Mazda by setting up a cash infusion and, in effect, a takeover by Ford. By putting up $481 million in cash, Ford brought its investment to 33.4 percent of the company, the legal line in Japan for a controlling interest. Soon thereafter, Henry D. G. Wallace, a former Ford executive, became president of Mazda Motor Corp., the first non-Japanese to head a Japanese corporation.

For approximately 20 percent below the market price for Mazda shares, Ford vastly increased its access to Japanese and other southeast Asian markets. It also hoped to integrate Mazda into its global reorganization, Ford 2000, intending to use Mazda’s small-car and engineering expertise to benefit other Ford operations and, at the same time, to create economies of scale for Mazda. However, Ford’s small-car operations in Europe threatened to make Mazda production redundant.

Mazda made some headway in 1997. Sales of its new Demio model proved strong in Japan, and operating profits rose to ¥7.1 billion (US$56 million) in the first half of the year, compared to a ¥12.7 billion operating loss for the same period in 1996. At the end of 1997, Wallace retired from the presidency and was replaced by another former Ford executive, James Miller.

Still, economic turmoil in Southeast Asia in 1997 and 1998 threatened the tenuous turnaround at Mazda. The company had been expanding its operations in southeast Asia in the mid-1990s, hoping to reduce the negative effect of the rising yen on its car prices. In 1993 Mazda had opened another production company in the Philippines, and two years later it began a joint venture with Ford called the Auto Alliance Co. Established in Thailand, the venture aimed to begin production of pickup trucks in 1998. However, plummeting demand in the region and unstable currencies added to Mazda’s struggles in the late 1990s.

Mazda Motors Corporation is the fourth largest manufacturer of automobiles in Japan. As a leader in the small car market, Mazda chose not to follow the example of its chief competitors Honda, Toyota, and Nissan in marketing larger luxury automobiles; rather, the company has achieved its greatest sales from smaller sports cars, particularly a model known in the United States as the Miata. Despite the commercial success of the Miata, however, the company experienced disappointing sales elsewhere in its product line in the early 1990s.

Mazda was organized by Jugiro Matsuda in 1920 as the Toyo Cork Kogyo, or East Sea Cork, Manufacturing, Company. The small enterprise, located in Hiroshima in southern Japan, was initially involved in the manufacture of cork products. In the mid-1920s, however, it expanded its product line to include several machined products. Reflecting this diversification, Matsuda dropped the word Cork from its name in 1927, and in 1929 the company began production of machine tools.

Matsuda believed that the enterprise could only remain successful if it had a truly unique product. To this end, Toyo Kogyo began design work on an unusual three-wheeled truck that proved commercially successful after its introduction in 1931. Furthermore, the company was an early supplier of products to a family of closely linked firms operating under the Sumitomo industrial conglomerate, with whom Toyo Kogyo maintained a close relationship. In 1935 the company began turning out rock drills and gauge blocks, which were of particular interest to Sumitomo, then one of Japan’s largest mining concerns. The company supplied Sumitomo—and other companies involved in the exploitation of resources in Taiwan, Korea, and later Manchuria—with machine tools.

After the seizure of Japanese government by right-wing militarists in the mid-1930s, Toyo Kogyo was drawn into military production. The company produced a variety of products for the Japanese Army, including automotive parts and machinery. The company’s management was placed under government authority after the United States declared war on Japan in 1941. Although an important and capable supplier, Toyo Kogyo was not considered a target for strategic bombing. Its operations remained intact until the last days of the war, although its operations were somewhat limited by the increasing lack of access to raw materials.

However, on August 9, 1945 the entire city of Hiroshima was destroyed by an American atomic bomb. Toyo Kogyo was Hiroshima’s largest employer, and while the factory was located far enough from the city center to avoid serious damage, many of Toyo Kogyo’s employees were not. Soldiers who had worked for Toyo Kogyo before the war returned to Hiroshima skeptical as to whether the city and its businesses could be rebuilt. Nevertheless, by December 1945 Toyo Kogyo was back in business, again turning out the three-wheeled trucks that were the core of its business. With a large commercial operation back in business, and a thriving local economy, Hiroshima was quickly rebuilt. Many workers felt a personal debt to Toyo Kogyo for its role in reviving the war-torn city.

During this time, Jugiro Matsuda retired, designating his son, Tsuneji, as his successor. Tsuneji Matsuda proved to be an extremely capable manager, exemplifying many of the qualities that would come to define the company as a whole: patience, diligence, and dedication to quality and efficiency. Early in his tenure, Tsuneji Matsuda became interested in the manufacture of automobiles, which he saw as essential to modern life in Japan. Indeed, with personal incomes increasing in Japan, automobile production had the potential to generate tremendous profit and lift the company to even greater heights.

In 1954, Toyo Kogyo established a technological agreement with Acme Resin that enabled the company to begin using a new shell molding method. After several years of development, Toyo Kogyo established plans for its first mass-produced automobile, the two-door “Mazda” R360 coupe. Matsuda reportedly chose the car’s name for its association with Auda Mazda, the ancient Japanese god of light, as well as for its similarity to the name Matsuda. The R360 made Toyo Kogyo a competitor in the growing consumer automobile market. However, while the company had introduced a viable product, the Mazda lacked one thing: it was not unique.

Matsuda had long known of a virtually abandoned engine technology developed in Germany by the inventor Felix Wankel. Wankel’s pistonless engine worked on a revolutionary principle in which a single triangular rotor circulated around a large combustion chamber with a gear at its axis. The rotor, moving orbitally around the gear, compressed air and fuel on one side, where a spark plug ignited the mixture. This drove the rotor around the axial gear, expelling exhaust fumes while setting up the next face of the rotor for another combustion. As the rotor wound its way around the combustion chamber, the gear at its
axis was forced to spin. This gear was attached to a clutch and transmission, and from there to a drive shaft. The Wankel engine offered more than mere novelty; by eliminating the in-out-in-out motion of pistons, the Wankel would operate more smoothly and with better performance than a conventional engine.

While successful in a laboratory, the Wankel engine was overlooked by engine makers because no one believed that it could be accurately machined in mass production. Matsuda, however, had great faith in his company’s machining techniques, and his engineers assured him that such an engine could be built on a massive scale. Matsuda reached an agreement with NSU/Wankel, the German firm that held a patent for the Wankel Engine, and in 1961 he won an exclusive agreement to develop the engine. Design work commenced, but it took several years to develop a suitable model.

In the meantime, Toyo Kogyo introduced a four-door automobile, the Carol 600, in 1962, and the following year the company’s one millionth vehicle rolled off its assembly line. In 1965, Toyo Kogyo produced another new model, the Mazda 800/1000, and completed work on a proving ground at Miyoshi. Also that year, the company established a diesel engine technology agreement with Perkins Services. Branching into the market for light duty trucks, Toyo Kogyo introduced the Mazda Proceed B-series compact pickup truck.

In 1966 the company completed construction of a new passenger car plant at Hiroshima. The following year, this plant began manufacturing the Mazda Cosmo Sports 11 OS automobile, the first Toyo Kogyo vehicle to be powered by a Wankel rotary engine. This model placed Toyo Kogyo in a truly unique position in the market. The rotary-powered engine gave the company an exclusive product that was smooth riding, quiet, and fast. Nothing produced by Toyo Kogyo’s competitors, industry giants Nissan and Toyota, could match it.

Other introductions to the company’s automobile line during this time included the Mazda 1000/1200; the rotary-powered R100 Mazda Familia Coupe; the RX-2 Capella; the RX-3 Savanna; and the RX-4 Luce. In 1972, Toyo Kogyo completed its five millionth vehicle, nearly one million of which had been exported. As worldwide sales increased, Toyo Kogyo set up sales organizations in the United States, Canada, Belgium, West Germany, Australia, and Malaysia.

In 1972 Henry Ford flew to Hiroshima to negotiate a license that would allow the Ford Motor Company to begin building rotary engines. Sure that Toyo Kogyo was on to something unique and profitable, however, Matsuda flatly refused to share the Wankel technology. Subsequently, Matsuda launched a bold worldwide marketing campaign in which the rotary engine was touted as the answer to high fuel prices. Consumers showed strong interest in the Mazda product line. To finance an expansion of production capacity, Toyo Kogyo made a huge public equity offering.

The OPEC oil embargo on 1973 sent a Shockwave through the world economy. With petroleum prices skyrocketing, consumer demand for energy efficient automobiles increased dramatically. The Mazda’s highly efficient rotary engine seemed the perfect alternative to conventional piston-engined automobiles.

However, emissions from the rotary engine exceeded clean air standards in California, the company’s largest export market. Adjustments made to clean up the engine came at the expense of fuel economy, which fell to ten miles per gallon. Furthermore, the rotary model was prone to breakdown. Production continued while Toyo Kogyo technicians launched an emergency re-engineering of the Wankel design.

By 1974, amid increasing pressure from the OPEC embargo, Toyo Kogyo managed to stretch the Mazda’s mileage rating to 16 miles per gallon, and then 20. But by this time, Honda, Ford, General Motors and Curtiss-Wright had begun development of stratified charge engines that promised greater efficiency than conventional and rotary engines. Moreover, Nissan and Toyota began an all-out war for market leadership in Japan, squeezing out smaller competitors such as Toyo Kogyo and Suzuki.

As consumer interest in the rotary waned, Toyo Kogyo began searching for ways to keep its factories operating nearer capacity. Matsuda negotiated a deal with Ford in which Toyo Kogyo would manufacture Ford’s Festiva model at its facilities. Strapped for cash, Toyo Kogyo finally agreed to license its rotary technology—to Suzuki, which used the engine for a new motorcycle.

When the oil embargo was lifted, oil prices and consumer interest in fuel-efficient engines declined rapidly. Improvements in the rotary design were finally perfected, giving Toyo Kogyo the efficient, environmentally friendly engine it needed—about two years too late. While U.S. fuel economy regulations kept Toyo Kogyo in the American market, the company had lost two years fixing the rotary engine, during which time Honda, Ford, and GM had developed their own improved engines, leaving Toyo Kogyo in the middle of a crowded pack.

With nothing other than the rotary engine to distinguish its product line, Toyo Kogyo was forced to quickly develop new models and concentrate on product quality as a competitive factor. The Mazda Familia and Capella 626 were introduced in 1977, followed by the Savanna RX-7 in 1978. By this time Toyo Kogyo had turned out more than ten million vehicles, one million of which were rotary-powered.

Amidst the company’s efforts to recover from the debacles of the 1970s, Tsuneji Matsuda retired, leaving his son Kohei Matsuda in charge. The younger Matsuda initially made great progress in shoring up the company’s balance sheet. However, in the opinion of the Sumitomo interests, which owned most of Toyo Kogyo’s shares and bankrolled its earlier failures, the turnaround wasn’t good enough. Sumitomo Bank officers felt that Kohei Matsuda was not adequately preparing the company for the future, and they disagreed strongly with his plans for restructuring the company, which included a wider product line and greater autonomy from Sumitomo management. Eventually, Matsuda was forced to resign his presidency to Yoshiki Yamasaki, a director favored by Sumitomo. The abdication formally ended the Matsuda dynasty at Toyo Kogyo.

The company enjoyed a jump in sales in 1979, when the Iranian Revolution caused a brief oil crisis. Also helping boost sales was the fact that Toyo Kogyo and other Japanese manufacturers had become known in the United States for the high quality of
their products; American cars, by contrast, had become known as poorly designed, carelessly built, and overpriced.

In 1979 Ford Motor Company began negotiations to acquire a large stake in Toyo Kogyo, hoping to merge it with its own Japanese subsidiary, Ford Industries. The $135 million deal, completed in November, left Ford with a 24.5 percent share of Toyo Kogyo. The merger paved the way for several new joint ventures between Ford and Toyo Kogyo, in which the Japanese company built small cars and trucks under the Ford nameplate and distributed Ford products in Japan.

In 1980, shedding the last of its failures with the rotary engine, Toyo Kogyo settled a class action suit charging design flaws with early models. Also that year, the Mazda FWD Familia was named car of the year in Japan. Unable to match Nissan and Toyota’s large sales staffs, Toyo Kogyo established a string of showrooms across Japan under the name Autorama. Also that year, as it exported its five millionth vehicle, the company set up sales organizations in the United States and Europe. In 1982, Toyo Kogyo established another production plant at Hofu, and in 1983 turned out its 15 millionth vehicle. The following year Toyo Kogyo formally changed its name to Mazda Motors, reflecting the tremendous popularity of its main product line.

Mazda introduced several new automobiles in 1985, 1986, and 1987, including the new versions of the Mazda RX-7 and 626. By 1987 the company had produced 20 million vehicles. Mazda also entered into several joint ventures, including one with Ford and Matsushita for the production of air conditioning systems. Under a second partnership, Mazda manufactured microcars for Suzuki, and under a third, it imported Citroen cars to Japan.

Mazda Motors continued to be led by a committee of Sumitomo bankers, who received input from Ford and Kia Motors, which acquired an eight percent interest in the company in 1983. In 1987, however, Norimasa Furuta, a former official of the Ministry of International Trade and Industry, assumed the presidency of the company.

Under Furuta, Mazda sharpened its focus, developing several new vehicles for specific markets. The Persona and Proceed were developed specifically for the Japanese market, joining the company’s mainstay, the 323 Sedan. The MPV mini van, initially intended for sale only in the United States, was later introduced in Japan. Of the company’s new vehicles, the MX-5 Miata was undoubtedly the most successful. A small sports car reminiscent of the MGB and Triumph Spitfire, the Miata was marketed in the United States, where it found an appreciative market particularly among young, affluent males. In designing the Miata, Mazda engineers borrowed liberally from the British Lotus and Elan, which they admitted disassembling for reference. Miata sales were brisk and did much to revive the reputation of Mazda in the United States.

While Nissan, Toyota, and Honda created luxury car divisions to compete with American Buicks, Lincolns, and Cadillacs, Mazda continued to specialize in smaller cars and trucks. With Ford as its largest shareholder, Mazda found its marketing niche operating informally as a small car subsidiary of Ford. Mazda established an American production facility in the Detroit suburb of Flat Rock, Michigan, employing American union labor. The company also established a massive sales and research organization in the United States, employing thousands of Americans.

Nevertheless, 80 percent of the vehicles Mazda sold in foreign markets were produced in Japan, saddling the company with extra transportation costs and subjecting it to foreign import restrictions, particularly in Europe. In addition, Mazda maintained five separate dealerships in Japan for Mazda, Ford, and Citroen.

Yoshihiro Wada succeeded Furuta as president of Mazda in 1990. Furuta was given a ceremonial position on the board, joining chairman Kenichi Yamamoto, who headed Toyo Kogyo’s rotary development during the 1960s. As it entered the 1990s, Mazda occupied a unique niche in the market, producing a relatively narrow line of midsize cars and small trucks. The stigma of the malfunctioning Wankel rotary engine largely overcome, Mazda remained a major manufacturer in Japan and one of the major brands worldwide precisely because it performed so well in its segment.